Palestinian Authority President Mahmoud Abbas accepted on Sunday the resignation of his recently appointed prime minister, Rami Hamdallah. His quick exit is feared as a potential setback to years of reform efforts aimed at improving the functioning of the Palestinian government.

The instability in Mr. Abbas's Western-backed Palestinian Authority comes as US Secretary of State John Kerry is expected back in the region in the coming days for a fifth time in some four months to promote what he says is a last-gasp effort to get the peace process going.

Part of his plan depends on promoting economic development in the West Bank, but the negotiations deadlock has stoked concern about growing unrest and a buckling of the Palestinian government in the West Bank. That’s a reversal from two years ago, when the Palestinian government was being praised as ready to run its own affairs as an independent state.

"I wouldn’t use the term deterioration, but it's the beginning of a period of more difficulties and problems," says Ghassan Khatib, a political analyst at Birzeit University.

When he was first named by Abbas, Mr. Hamdallah was seen as a choice that balanced strong ties to the Palestinian Authority president, but – like his predecessor Salam Fayyad – came with the credentials of a professional from outside the ruling Fatah party to calm the international donors who underwrite the Palestinian government budget.

The surprise resignation, first announced on Thursday, indicates stronger than expected pressures within the Fatah party to regain control over the premiership, which controls the daily government activities. Hamdallah reportedly quarreled with a newly created deputy prime minister from Fatah, Mohammed Mustafa.

The appointment debacle is liable to undermine donor confidence abroad, while the fallout will ultimately weaken Abbas domestically.

It was infighting between Mr. Fayyad and members of the Fatah party over government administration that led Fayyad to tender his resignation several times before it was accepted last April. The Palestinian government has been under immense economic pressure from lower-than-expected proceeds from donors, and intermittent cut-offs in tax revenue transfers from Israel.

"It's very worrisome. It’s an indication that there are serious problems between the Fatah people and Abbas. If [donors] can’t get confidence that the money the Palestinians get is going to be clean, there's a big problem," says Gershon Baskin, the former director of the Israel-Palestine Center for Research and Information. "I hope this isn’t the straw that breaks Abbas' back and he’ll resign. This is another step weakening him."

The official Palestinian news agency confirmed that Abbas had accepted the resignation after three days of speculation that the president might convince Hamdallah to rescind the resignation. Hamdallah, who will return to his job as president of An-Najah University in Nablus, will remain as a caretaker prime minister until a replacement can be found.

A post from a twitter account that purported to be the official handle of Prime Minister Hamdallah said: "The situation in this country forced me to resign. Conflicts, confusion, corruption. Palestine needs a real political reform."

But hours later the Palestinian government press office issued a statement denying that the statement came from the prime minister.

Mr. Khatib, a former spokesman under Fayyad, says that the departure of Hamdallah is part of a declining participation of independent ministers in the Palestinian government, and a return to the style of rule of former Palestinian Authority leader Yasser Arafat.

"The change that we just witnessed reflects a withdrawal from the checks and balances under Fayyad," he says. "This reflects centralization of power under Fatah, which recalls the administration of Arafat."